Leak highlights losses for troubled Pie Face

Fast-food chain
Pie Face
is trying to sell stores that have run at a loss, while closing other stores, according to leaked internal documents.

The publicity-hungry chain has recently closed stores nationwide, including one in a high-traffic area on Melbourne’s Bourke Street and another in Brisbane’s George Street belonging to IT professional
Prit Dutta
, who is taking Pie Face to court.

Around 50 Pie Face franchises in Australia are for sale, and the total has increased since The Australian Financial Review broke the story of widespread losses, dissatisfaction and pending legal action in January.

Pie Face denied at that time there was anything wrong with its business model.

“The reality in franchising is that running a successful franchise is 80 per cent based on the person," said Pie Face founder
Wayne Homschek
.

But a leak of internal Pie Face documents suggests it is not just unlucky franchisees who are running stores at a loss. A spreadsheet obtained by the AFR shows sales and costs for 13 stores owned by the company for the months of July, August and September 2012.

Of those, 12 made losses during the period, according to the spreadsheet.

The biggest loss on the spreadsheet was the store at 707 George Street, Sydney. It had sales of $99,000 and costs of $169,000 in the quarter.

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Chief marketing officer Ben Macpherson said the numbers “appear to be either incorrect and/or incomplete – a significant portion of our company stores are delivering profits to the group".

The store at 707 George Street was subsequently advertised for sale at $195,000, but later closed.

Mr Homschek pointed out that company-run stores tend to be those that performed poorly.

“By default, the company stores are the stores that could not be sold due to underperformance or lack of buyers, newness and in start-up mode, or the fact that they were taken back from a franchisee that was underperforming and are being turned around," he said by email.

The spreadsheet was obtained from two separate sources.

Sales figures on it have been confirmed by cross-referencing other documents.

Pie Face can make money from loss-making stores – not only by selling stores – but also through a profit margin it charges on pies supplied by its central kitchen.

The company is expanding quickly with new stores opening, especially in rural areas.

It claims to have 79 stores open and 50 stores – old and new – are listed for sale.

Of these, at least 15 have previously been franchised. The Financial Review is aware that several have run at a loss for extended periods.

Some have been for sale for months.

The Pie Face website says existing stores are sold “mostly due to changes in their personal circumstances – however this happens rarely".

A group of Pie Face franchisees is in the advanced stages of planning a legal action.

Lawyer David Newhouse said the franchisor and franchisees have been unable to resolve the matter.

“You must remember, once the franchisees have got to this stage, they often have lost their life savings, their house and even their marriage.

“These disputes place huge amounts of pressure on the franchisee both financially and personally," he said.

While the legal dispute looms in Australia, Pie Face is pursuing plans for expansion in the United States and New Zealand.

It has secured a $15 million investment from American casino tycoon Steve Wynn and has four stores in the US which “are trading well" while another four are being developed in that country.